4.3 Homeowners Policy Forms: HO-2, HO-3, HO-4, HO-5, HO-6, and HO-8

Eligibility & Framework of Homeowners Policies

The Homeowners Policy Program represents a multi-peril package contract that integrates real property, personal property, loss of use, personal liability, and medical payments coverage into a single integrated contract. Developed by the Insurance Services Office (ISO), homeowners policies are strictly regulated to protect consumer interests while establishing clear underwriting boundaries.

Core Eligibility Rules

1. Owner-Occupancy Benchmark: Under forms HO-2, HO-3, HO-5, and HO-8, the named insured must be the owner-occupant of the dwelling. The structure must serve as the insured's private residence.
2. Structure Configuration: The residence may contain no more than one to four residential family units. No more than two roomers or boarders are permitted per family unit.
3. Tenant and Condominium Occupancies: Tenants who rent a home or apartment qualify exclusively for the HO-4 Contents Broad Form. Condominium unit owners qualify for the HO-6 Unit-Owners Form.
4. Incidental Business Occupancies: Permitted if the business is conducted on the premises by an insured, involves no other employees, and represents professional, teaching, or small service activities (such as private tutoring, accounting, or freelance design).
5. Life Estates and Co-Owners: Individuals holding a recorded life estate or joint co-ownership interest in an owner-occupied residence are eligible for standard homeowners coverage.

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Section I Property Coverages Breakdown

Section I of the Homeowners policy establishes four principal property coverage categories (Coverages A, B, C, and D), structured mathematically around the stated Coverage A limit.

Coverage A — Dwelling

Coverage A covers the residential dwelling building shown on the declarations page, structures attached directly to the dwelling (e.g., attached garages, decks, screened porches), and construction materials and supplies located on or next to the residence premises used to construct, alter, or repair the dwelling. Land, including land on which the dwelling is located, is explicitly excluded.

Coverage B — Other Structures

Coverage B applies to detached appurtenant structures separated from the dwelling by clear space, or connected solely by an unattached fence or utility line. Examples include detached garages, sheds, guest houses, cabanas, in-ground swimming pools, fences, and driveways.

• Default Limit: Standard ISO forms set Coverage B at 10% of Coverage A.
• Additional Insurance: Coverage B is an additional amount of insurance; paying a detached garage loss does not diminish the Coverage A limit.
• Exclusions: Coverage B excludes any structure used in whole or in part for business purposes, or any structure rented or held for rental to any person who is not a tenant of the dwelling (unless rented exclusively as a private garage).

Coverage C — Personal Property

Coverage C protects personal property owned or used by an insured anywhere in the world. Personal property of guests or residence employees may also be covered while located on the residence premises at the insured's request.

• Default Limit: For owner-occupied forms (HO-2, HO-3, HO-5, HO-8), Coverage C is set by default at 50% of Coverage A (e.g., a $400,000 Coverage A policy provides $200,000 of Coverage C). The insured may purchase higher limits by endorsement.
• Off-Premises Worldwide Coverage: While Coverage C applies worldwide, personal property usually situated at an insured's secondary residence (such as a vacation home or secondary apartment) is subject to a special sublimit equal to 10% of the Coverage C limit or $1,000, whichever is greater.
• Property Excluded: Articles separately described and specifically insured (scheduled floaters), animals/birds/fish, motor vehicles and accessories, aircraft, hovercraft, property of roomers/boarders, property in an apartment regularly rented to others, and business data/records.

Special Limits of Liability (Coverage C Sublimits)

To mitigate exposure to highly portable, easily stolen, or exceptionally valuable property, ISO forms impose mandatory dollar sublimits. These sublimits apply per occurrence and do not increase the overall Coverage C limit.

Coverage D — Loss of Use

Coverage D provides financial protection when a covered loss renders the residence premises uninhabitable. It encompasses three distinct elements:

1. Additional Living Expense (ALE): Pays the necessary increase in living costs incurred by the insured household to maintain their normal standard of living (temporary rent, hotel bills, laundry, dining out).
2. Fair Rental Value: Reimburses the owner for lost rental income if a tenant-occupied portion of the home becomes unlivable, less non-continuing operating expenses.
3. Civil Authority Prohibited Use: Reimburses ALE and Fair Rental Value for up to two weeks when a civil authority orders evacuation of the residence due to direct damage to neighboring premises caused by a covered peril.

Standard Form Percentages for Coverage D:

• HO-2 and HO-3: 30% of Coverage A
• HO-4 (Renters): 30% of Coverage C
• HO-5 (Comprehensive): 30% of Coverage A
• HO-6 (Condo): 50% of Coverage C
• HO-8 (Modified): 10% of Coverage A

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Comparative Analysis of ISO Homeowners Forms

+-------------------------------------------------------------------------+
|                       ISO HOMEOWNERS POLICY FORMS                       |
+------+--------------------+--------------------+------------------------+
| Form | Form Name          | Building (Cov A&B) | Contents (Cov C)       |
+------+--------------------+--------------------+------------------------+
| HO-2 | Broad Form         | Broad Named Perils | Broad Named Perils     |
| HO-3 | Special Form       | Open Perils        | Broad Named Perils     |
| HO-4 | Contents Broad     | [N/A - Tenants]    | Broad Named Perils     |
| HO-5 | Comprehensive Form | Open Perils        | Open Perils            |
| HO-6 | Unit-Owners Form   | Named Perils*      | Broad Named Perils     |
| HO-8 | Modified Coverage  | Basic Named Perils | Basic Named Perils     |
+------+--------------------+--------------------+------------------------+
*HO-6 Coverage A covers interior improvements/alterations; can be endorsed to open perils.

HO-2 (Broad Form)

A named-perils package policy covering both structures and personal property against the standard 16 broad named perils. Building losses are settled on an RCV basis (subject to 80% coinsurance); personal property is settled on an ACV basis.

HO-3 (Special Form)

The most widely issued residential property policy in the United States. It provides open perils coverage on Coverages A and B and broad named perils coverage on Coverage C. Because Coverage A is open perils, any structural damage is covered unless the insurer can prove that an exclusion applies. Building losses settle at RCV (80% coinsurance); contents settle at ACV.

HO-4 (Contents Broad Form / Renters Insurance)

Designed specifically for residential tenants who do not own the physical building. HO-4 provides no Coverage A (Dwelling) or Coverage B (Other Structures), but includes an additional coverage granting 10% of Coverage C for building additions, alterations, and improvements made at the tenant's expense. Coverage C insures personal property against the 16 broad named perils.

HO-5 (Comprehensive Form)

The premier residential property contract. HO-5 provides open perils coverage on both building structures (Coverages A and B) and personal property (Coverage C). Unlike HO-3, personal property claims under HO-5 are not restricted to named perils. It covers mysterious disappearance, accidental loss, and unexplained damage to contents unless specifically excluded. The same special limits of liability on money, securities, jewelry, firearms, and silverware still apply.

HO-6 (Unit-Owners Form / Condominium)

Tailored to the unique legal structure of condominium ownership. The condominium association's commercial master policy insures the common elements and outer building shell. The HO-6 policy provides:

• Coverage A (Dwelling): Insures alterations, appliances, fixtures, and interior improvements located within the bare interior perimeter walls, floors, and ceilings of the individual unit (e.g., custom cabinetry, hardwood flooring, bathroom plumbing fixtures, interior partitions).
• Standard Base Limit: Historically set at $1,000 or $5,000 in the base form, but virtually always increased by endorsement (often to $50,000–$250,000+) to match the unit owner's build-out.
• Coverage C: Personal property on a broad named-perils basis.
• Coverage D: Loss of use set at 50% of Coverage C.

HO-8 (Modified Coverage Form)

Created for older, architecturally significant, or historic homes (e.g., Victorian, historic brownstones, or Craftsman homes) where the full replacement cost using original materials (hand-carved plaster moldings, timber framing, ornate masonry) vastly exceeds current market value (e.g., a home with a $200,000 market value that would cost $800,000 to reconstruct identically).

• Valuation Basis: Utilizes Functional Replacement Cost, meaning repairs are completed using common, modern construction materials and techniques (e.g., standard drywall instead of lath-and-plaster).
• Peril Scope: Limited to basic named perils (fire, lightning, EC perils, VMM).
• Theft Restrictions: On-premises theft is capped at $1,000 per occurrence, and off-premises theft is completely excluded.
• Coverage Limits: Coverage B is 10% of A, Coverage C is 50% of A, and Coverage D is 10% of A.

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Section II Liability Coverages Overview

All standard ISO Homeowners forms (HO-2 through HO-8) incorporate identical Section II liability provisions. Section II protects the insured against third-party claims alleging bodily injury or property damage.

Coverage E — Personal Liability

• Standard Limit: $100,000 per occurrence (frequently increased to $300,000 or $500,000).
• Scope: Pays damages for which an insured becomes legally liable due to bodily injury (BI) or property damage (PD) caused by an occurrence anywhere in the world arising from non-business, personal activities or premises conditions.
• Defense Costs: The insurer provides a legal defense with counsel of its choice at its own expense. Defense costs are paid in addition to the policy limit; attorney fees and court costs do not erode the Coverage E limit.

Coverage F — Medical Payments to Others

• Standard Limit: $1,000 per person (can be endorsed to $5,000).
• Scope: A "goodwill" coverage that pays necessary medical expenses (medical, surgical, x-ray, dental, ambulance, hospital, funeral) incurred within three years from the date of an accident causing bodily injury.
• No-Fault Mechanism: Coverage F applies regardless of legal fault or negligence. It covers guests injured on the residence premises, or injured off premises by activities of the insured or residence animals.
• Exclusion: Coverage F never covers the named insured or regular residents of the household.